
Class JfROl 
BookJ 



CopyrigtitN 



o>k3X 



CQEXB1GHT DEPOSFT. 



SCIENCE OF VALUE 



SOLVING IT 



BY 

HENRY RAWIE 



WILLIAMS & WILKINS COMPANY 
BALTIMORE, MD. 






Copyright secured 1920 
By Henry Rawie 



MAY 20 1920 



©CU570067 



PREFACE 

If the world is to advance to a larger 
civilization, that advance must come 
from new paths in solving labor and 
capital problems, come with the dis- 
covery of new truth, but new ideas are 
difficult to follow when the mind is 
called upon to go in the opposite direc- 
tion from accepted theory. 

Socialism and other systems of re- 
form for labor are based upon false 
theories and false beliefs, having a 
false starting point, and no right con- 
clusions can come from a wrong begin- 
ning. No true solution from a false 
premise. 

The false starting point, accepted 
without debate or question, asserts 
that Labor is the Cause of Value, that 
labor creates the value of goods and 
property, and therefore the only valid 
title to goods or property rests with 

3 



4 PREFACE 

labor, that any profit above labor cost 
is a robbery of labor. If this founda- 
tion is false that fact should be self evi- 
dent, new paths should appear and cor- 
rect solutions should follow from new 
discoveries in a new science. 

The true starting point is exactly the 
reverse of the accepted theory. Labor 
is NOT the cause of Value but Value 
is the Cause of labor. Value, when 
attaching to goods in the market, 
forces labor to work at tasks of every 
kind, creating food and shelter in every 
variety and quantity, building great 
systems of railways, electric lines and 
manufacturing. 

Value is a great inscrutable creative 
power of the Almighty. It is not cre- 
ated by labor, but it creates labor and 
directs labor in the way it must go to 
bring about civilization. Labor and 
capital is directed by natural laws of 
value, and is so directed by and through 
the circulation of money. Such laws 



PREFACE 5 

constitute a science of value, which 
science when known will solve all our 
labor, capital and other distressing 
social problems. 

The manufacturer or merchant is 
held firmly to his business by the mar- 
ket price of the goods he sells; by the 
value that will attach to goods after 
they reach the market. 

The employer of labor is guided by 
the market price, his labor cost and 
the wages he pays must leave a margin 
of price above labor cost or he will 
not employ labor or bring goods to 
market. The natural laws which set 
values to different lines of goods in 
the market are laws that control, not 
only the wages of labor and profits of 
merchants but at the same time direct 
the forces of production in the way 
they shall go for the benefit of all 
mankind. 



CONTENTS 

Chapteb 1 
Fatal Theories 9 

Chapter 2 
Cost of Living 23 

Chapter 3 
Capital 42 

Chapter 4 
Rotating Capital 57 

Chapter 5 
The Cost of Land 70 

Chapter 6 
Solving It 84 



7 



CHAPTER 1 

Fatal Theories 

If you tell a sensible man you under- 
stand the " Labor Question" and know- 
how to solve it, he will turn and run 
away because theories of government 
have become like tales of an Albatross 
with thousands of crazy Ancient Mar- 
iners stopping every one to tell him 
the story. The whole civilized world 
seems to have gone mad with an insane 
desire to change our present civiliza- 
tion by some new and untried experi- 
ment. 

A sensible man will run in terror 
from the theorist who demands power 
to change the ownership of property, 
because he will know that for five 
thousand years of history the same 
kind of promise was followed by the 
most bloody results, making bad con- 
ditions worse. 

9 



10 SCIENCE OF VALUE 

Notwithstanding the failure of war 
to solve social problems; failures to re- 
lieve poverty and distress among the 
underpaid millions, notwithstanding the 
fact that within a hundred years the 
advance of science has given the vast 
majority of labor a higher standard of 
living than was ever dreamed about in 
olden times, in spite of progress and 
great wealth, the great majority of peo- 
ple are more discontented than ever 
before in the history of the world. 

The news coming out of Russia at 
this time, January, 1920, concerning 
the change of ownership in property, 
is such that any man whose opinion is 
based upon the facts, is forced to con- 
clude that Russia is suffering what no 
great population ever before endured. 
Instead of the theories of Lenine bring- 
ing a new and better order, conditions 
have for a long time been at the limit 
of human endurance, half the popula- 
tion is being rapidly killed off by dis- 
ease, starvation and murder. 



FATAL THEORIES 11 

In face of what appears to be the 
undoubted facts about Russia, in spite 
of the cold murder of thousands of 
property owners because they own pro- 
perty, millions of people in other lands, 
workers and educators, uphold and 
support the Russian rule of murder, 
notably so in Great Britain, France, 
Italy and the United States. 

Lenine, in carrying Socialism to its 
logical conclusions, found he could not 
destroy the prevailing system of own- 
ing property unless he murdered and 
exterminated the property owners who 
might oppose his rule, and he is said to 
have ruthlessly carried out his theory of 
blood. 

According to that fatal theory the 
remedy is very simple, just abolish the 
ownership of property, and if the owner 
refuses to be abolished, if the small 
owner would combine with the rich 
owner, then every property owner must 
be exterminated to root out a system 



12 SCIENCE OF VALUE 

called Capitalism by Russian and other 
fanatics. 

According to theory, when property 
ownership has been abolished, then 
government, free from the evil influ- 
ence of so called capitalism, will auto- 
matically give labor its natural rights 
and a paradise on earth must follow. 

Lenine destroyed the rich as a class, 
but included so many small owners 
that they could not combine to oppose 
his power, and his devoted followers all 
over the world, seeing the complete- 
ness of his work of murder, seeing there 
was no longer a rich class, find his 
theory carried out in actual practice, 
and believe a paradise for labor must 
necessarily follow, in spite of all the 
facts to the contrary. 

So anxious are the people of the 
world to finally solve the problem of 
unjust wealth, that no cost of blood is 
held too great a price to pay. Great 
numbers of people will not only sacri- 



FATAL THEORIES 13 

fice their own lives to carry out a the- 
ory they believe will bring justice to 
labor, but will not hesitate at killing 
whole populations of men, women and 
children that would oppose them. 

No matter in what form government 
changed in the past, each revolution, 
and each advance or fall had the same 
underlying cause in the ownership of 
property, changing it from one class in 
power to another class who sought 
power. Modern discontent has the 
same tap root, the same desire to 
change ownership for the power wealth 
confers, but the modern world now de- 
mands a vaster change than ever be- 
fore, demands that ownership must 
either be entirely abolished or that 
wealth be justly distributed according 
to the services of labor for the benefit 
of mankind. 

The same economic cause is at the 
base of every war and revolution in the 
history of government, and it must result 



14 SCIENCE OF VALUE 

from some great natural law at its base 
seeking a way by which wealth will at 
last be justly distributed to each as 
each contributes to the general welfare. 

Nature makes it plain to every man 
that he can live with the least work 
where the land is most fertile and 
where the climate is most favorable; 
tens of millions of animals, birds and 
fishes live on the free bounty of nature 
and millions of savages live without 
work. 

The fact that millions of men must 
work to the limit of endurance every 
day for a mere living which savages 
and animals get without work, and 
must do so after labor has created bil- 
lions of property values, is the cause 
of modern world-wide discontent. 

When populations of savages were 
forced into slavery by conquering tribes 
the work of cultivating the soil with 
slave labor was confined to the most 
fertile lands, because the least work 



FATAL THEORIES 15 

would produce the most supplies. It 
soon became apparent that one half of 
the working population could supply- 
all the people with an abundant living, 
and abandon the poor lands to sav- 
ages, or to become wild land. 

When fertile lands become private 
property, the owners became a rich 
class getting their power from the fer- 
tility of soil by which they were able 
not only to control the labor that must 
work upon the land, but also the labor 
cut off from the land that must have 
other work and live from the surplus 
of the fertile soil. 

The introduction of money took 
away this power over labor from the 
mere land-owner and forced a division 
of that power with merchants, with 
other employers and with the banker 
and money lender. Gains arising to 
all employers of labor, out of the fer- 
tility of soil, from the circulation of 
money, made the factors of production 



16 SCIENCE OF VALUE 

and wages most perplexing, because 
the use of money increased occupation 
of labor from the few that provided 
simply food and shelter to thousands of 
new divisions of labor that called for 
great cities for factories and railway 
systems, and for millions of consumers 
for factory products. 

In the modern world the organiza- 
tion of labor to better its condition be- 
came a vast system of education about 
markets, prices, wages, profits, ma- 
chinery and capital, millions of working 
people, for the first time, became aware 
of the connection between wage money 
and the things it bought, and it was 
soon discovered there was a gap be- 
tween wage money and prices of goods 
the money must buy. 

Labor organizations were forced to 
keep accounts of the cost of labor in 
many lines, to learn the cost of capital 
and machinery, the cost of getting sup- 
plies to market, and to separate profits 
from all such costs. 



FATAL THEORIES 17 

An elemental truth was being made 
clearer and clearer to organized labor 
as modern civilization advanced by 
leaps and bounds, and this truth cul- 
minated in a doctrine that the wages 
of labor must, in some way balance 
with the money the labor product sells 
for, and when this balance has been 
secured labor will be getting its full 
reward. 

Let us accept the doctrine that — 
The Wages of Labor Must Buy 
Back the Entire Product at the 
Market Price — and follow it as a 
fundamental truth, to see what the 
actual facts have to say, and how 
wages may arrive at that place. 

Here is the place where theories and 
disputes have their origin, for on one 
side it seems impossible to pay the en- 
tire selling price of goods in wages, be- 
cause, looking at any one product, it is 
quite impossible to pay the labor of 
that product its entire market price. 



18 SCIENCE OF VALUE 

This fact brings about the utmost 
confusion of theory. It is taken for 
granted that a condition for a part of 
the total price for goods must effect the 
whole price list in the same way, but 
such is not the case. Because it rains 
today does not decide that it must 
rain every day. The law for living 
things is a law of great classes and is 
not a law for each unit of any class as 
it is in material things. 

It is true the wages of labor must 
balance with the selling price of the 
whole product, but such a balance 
would be impossible if the producing 
labor was paid the market price for 
each product and no account was taken 
of the other labor that must buy what 
it does not produce. 

The wages of all labor must balance 
with the market prices of the total 
product, which will include the wages 
for about half of total labor never 
counted as part of the cost of goods in 
the market. 



FATAL THEORIES 19 

The wages of lawyers, government 
servants of all kinds, teachers, writers, 
printers, actors, preachers, doctors, and 
the like, must buy goods and this helps 
create the market price of goods and 
they must have their wages carried by 
that market price, although their work 
is never calculated as a part of the cost 
of any of the goods they consume. 

When special classes of labor, like 
railway and factory workers claim the 
whole money income of railways, or 
factory belongs to them and that profit 
is a robbery, such a claim ignores the 
money that must be distributed to 
other labor and which cannot circulate 
and be distributed unless it is carried 
in the price of goods all the people buy. 
Total wages must equal total prices 
each year. 

When history records the failure of 
Lenine, the chief cause of quick ruin in 
Russia will be found in his radical 
method of trying to pay factory wages 






20 SCIENCE OF VALUE 

equal to the selling price, to include 
profit while ignoring an equal claim of 
other labor in the same market price. 

Lenine's wage theory brought about 
a paralysis in the employment of sec- 
ondary labor; it destroyed the circula- 
tion of money and the market in which 
the peasant sold the surplus from fer- 
tile lands. Business must fail and bar- 
ter must replace the use of money in 
Russia until a sane government will 
establish a circulation of money that 
obeys its natural laws. 

Seeing the utter collapse of his the- 
ories, Lenine was driven to print bil- 
lions in rubles, for his barbarism re- 
quired some sort of money to hold even 
its short lease of government power. 
Facing a coming disaster with one bil- 
lion of rubles from the printing press 
"treading upon the heels of other bil- 
lions so fast they follow/ ' he now as- 
serts he is destroying money because 
it is the chief cause of the slavery of 
labor. 



FATAL THEORIES 21 

Demanding impossible wages, a la- 
bor organization may paralyze the 
transportation, or the basic industry of 
a nation and threaten its whole exist- 
ence upon a fatal theory that the whole 
sum collected belongs to railway or fac- 
tory workers, following on the heels of 
disaster in Russia. 

Labor organizations do not get their 
great power from the power of numbers 
as they suppose, but get it from society 
tamely submitting to a small fraction 
of labor taking absolute control over 
vast systems of machinery which are 
doing nine-tenths of our total work, 
permitting labor leaders to assert a 
power like Feudal Barons of other 
times but of a lower civilization. 

It will be well for labor leaders to 
learn the truth in time, for if they are 
successful in their outrageous demands 
they will as certainly destroy civili- 
zation in the United States as has been 
the case in Russia, and no government 



22 SCIENCE OF VALUE 

calling itself Democratic may long sub- 
mit to the strike power now held by 
organized labor. Sooner or later such 
labor leaders must be treated as ene- 
mies and traitors to civilization and be 
punished accordingly, or our modern 
civilization will pass away in another 
period of dark ages and a new civiliza- 
tion arise from new generations of bar- 
barians. 



CHAPTER 2 
Cost of Living 

A natural law declares that wages 
must balance the market price of the 
entire labor product, at two times its 
cost in a cash market. A natural law 
declares that all the goods and capital 
labor can send to market will meet 
their supply of money to buy them 
at two times the cost if we do not in- 
terfere with the natural order. 

The natural wage rate is much 
greater than ever a Lenine or Socialist 
philosophy dare claim, and it will not 
be difficult to prove how wages may 
rise to the natural limit, by a simple 
plan, without the murder of a single 
property owner, without disturbing ex- 
isting governments, and do so by cre- 
ating the most prosperous period of 
industry the world has ever witnessed, 
and make that prosperity permanent. 

23 



24 SCIENCE OF VALUE 

Wages will not rise to the natural 
limit unless the demand for labor will 
send the rate to that limit, and force 
employers to pay the rate. The nat- 
ural demand for labor will come from 
the expenditure of billions of dollars 
producing something for which there 
will always be found a profitable mar- 
ket and for which the supply can never 
equal the demand. 

What is it that labor may produce 
where the supply can never equal de- 
mand? The answer is Wealth that 
pays an income and which allows the 
owner to live without work. 

An insatiable demand for labor will 
arise by giving it a free field to build 
capital that buys a living without work. 
As the demand to live without work 
can never be satisfied it follows that 
having a free field to build the capital 
that will enable its owner to live with- 
out work the demand for labor in this 
field must be so much greater than the 



COST OF LIVING 25 

supply as to force wages to the highest 
point wealth can be made to pay. 

The production of capital must be 
made profitable, not only must capital 
collect its required rent to make the 
investment a good one, but it must also 
sell for more than it cost to build, 
which is to say that buildings must be 
manufactured and sold in quantity 
just like goods are sold; that dilapi- 
dated buildings in cities, which . now 
collect high rents on the best locations 
must be torn down and be replaced 
with the kind of building each location 
demands. 

New profit in building must come by 
getting the best locations for great 
buildings, in the heart of cities, with- 
out cost for land. It is the present 
cost of land in cities that prevents 
labor from now buying back its entire 
product. Money must now be spent 
to buy land, and since land is not a 
labor product the money taken to buy 



26 SCIENCE OF VALUE 

land unsettles the money market and 
makes that market just that sum short 
of its natural supply, debts are thereby 
created to offset the loss of money paid 
for land. 

In getting at the foundation of wages 
the first fact to get to the light is the 
fact that factory products must be 
sold to a vastly greater number of con- 
sumers than the mere workers whose 
wages make up the cost of such prod- 
ucts, how is the extra money to reach 
the hands of extra buyers unless the 
price of that product carries the money 
with it from the market? 

Factories and railways represent vast 
expenditure of past labor and material 
in great systems of plants, how is a city 
consumer who produces none of the 
goods he consumes to get money to buy 
unless the price of such goods carries 
that money around its circle, from the 
market to labor of every description? 



COST OF LIVING 27 

The selling price of any labor product 
must be high enough above its wage 
cost so as to include the money other 
labor must spend to buy it. In buy- 
ing back its entire product it is nec- 
essary that the price of each product 
must balance with the money labor 
must spend in the market. The fact 
that land commands a price, but pays 
no money to labor to balance that 
price, is what now throws our markets 
and prices in confusion. Order and 
harmony between labor and capital 
can never be established until what is 
now a price for land becomes a price 
of a labor product which will be bal- 
anced by the money labor spends in 
all markets. 

If it is true that each labor product 
must carry in its market price the 
money that returns to labor to buy it, 
where does capital come in? What 
part of the purchase money for com- 
modities does capital supply and what 



28 SCIENCE OF VALUE 

part of the wage that buys a living, is 
the capitalist expected to pay? 

If goods distribute all the money to 
pay for goods, why need capital em- 
ploy labor? This was Lenine's propo- 
sition and it seems logical. Capital 
does not now and never can employ 
labor in producing goods. Labor em- 
ploys labor by dividing into two great 
classes each class becoming the em- 
ployer of the other. Capital brings 
labor from the past into the present 
market to assist and cooperate with 
living labor and brings into the market 
an enormous supply of money earned 
by past labor which we call credit 
money that should increase the wages 
of present labor, but fails to do so and 
that failure creates the trouble between 
labor and capital. 

Consider a moment the vast sums that 
have been spent for railway systems, fac- 
tory systems, building cities and towns, 
improving farms and the like that we now 



COST OF LIVING 29 

use as past labor and need not produce. 
Capital represents a sum in the United 
States of about two hundred and fifty 
billion dollars earned by past labor that 
should now cooperate to increase the 
wages of present labor but fails to do 
so. A sum of two hundred and fifty 
billion dollars worth of past labor we 
use every day with only a hundred 
million dollars cost for present labor 
each day to buy the living. 

The owner of capital, while not in 
fact an employer of labor, is expected 
somehow to pay for the capital he 
owns, to pay present labor because 
present labor supplies the living-with- 
out-working, that gives capital its value 
in money. 

Capital is expected to pay just as 
any buyer in the market will pay by 
buying at a price above cost, but labor 
should be the main buyer of capital, as 
it is the main buyer of goods, here 
again it fails. 



30 SCIENCE OF VALUE 

Speaking of labor as a total, and not 
the mere labor that directly produces 
goods, there comes from labor a vast 
daily product to sell in our markets 
and a natural law forces that product 
to sell at a price of two times labor 
cost because only half the labor is 
paid to produce goods — leaving capital 
to create its own market. 

Labor, speaking for total labor, 
sends a quantity of capital to market 
each year and the price of capital is 
fixed by natural law at two times its 
cost where land cost is omitted, and 
this capital must carry money to buy 
capital for labor like goods must carry 
money for labor to buy goods. 

The failure in the circulation of 
money will be found in the cost of land 
taking money belonging to the market 
for capital which money would bring 
past labor into the market as profit 
from the production of capital. The 
money to buy capital must come from 



COST OF LIVING 31 

a market price of capital the same as 
the money to buy goods comes from 
the market price of goods, and debts 
that supply money to pay for land, de- 
stroys the circulation of past-labor- 
money or capital money. 

Labor is entitled to a vastly greater 
sum in wages than any socialist or 
government ownership theory asserts 
but this greater sum is credit money 
earned by past labor which must co- 
operate with the cash earned by pres- 
ent labor. The solution of this prob- 
lem demands a different treatment of 
industry than present theories advo- 
cate. Profits must be preserved above all 
things; while socialist and other theories 
are bent on destroying profits. 

How does it happen that a few labor- 
ers operating machines are so prolific, 
or fertile, in producing goods that one 
worker, with the help of capital or 
past labor, will supply the needs of a 
hundred families? 



32 SCIENCE OF VALUE 

The productiveness of machines, 
steam and electricity, is said to come 
from capital and from the superior 
brains of the capitalist, but that is no 
answer because it is apparent that cap- 
ital and its organization has been intel- 
ligently directed for centuries of the 
past, to supply new classes of goods to 
meet new stages of civilizations and 
has been a continuous evolution. 

What we call profit is but another 
name for the fertility of soil, or fertil- 
ity of production given free by nature 
above cost of living for labor. The 
low unit of cost from machines is not 
to be credited to the labor that oper- 
ate them or to capital but to fertility 
of nature the same as a ten thousand 
barrel oil well is not credited to the 
drillers or to the cost of an oil well. 

There must be enough shoes, for 
example, to supply all the people, and 
money must be distributed to the peo- 
ple to buy them. If one laborer, 



COST OF LIVING 33 

working in a shoe factory, turns out a 
hundred times as many shoes as he 
buys back it is plain that wages in 
shoemaking, spent only for shoes, would 
leave the market with most of its shoes 
without buyers. 

The price in the market must not 
fall below the labor cost of production, 
and before other classes may buy shoes 
the price must rise high enough above 
cost of production to supply money for 
all consumers of shoes. 

The reader should get the fact clear 
in his mind that every labor product in 
the market must carry a price, that 
will not alone pay its own labor cost 
but a price that supplies other labor 
with money to buy the surplus. Oil 
must carry and distribute money to 
the whole population; all the money re- 
quired to buy oil, and when one well 
will produce ten thousand barrels at 
fifty thousand times less cost than an- 
other well giving only one barrel in 



34 SCIENCE OF VALUE 

five days, it simply means that such 
fertility in an oil well is used by Na- 
ture to carry the extra supply of money 
consumers must get, and can get in no 
other way. 

It is necessary to look upon the body 
politic as being one great Mass-Man 
who daily consumes vast supplies of 
food, clothing, coal, steel, lumber, cop- 
per and other goods, requiring cities, 
towns and farms connected with rail- 
way and factory systems. The de- 
mand for a living by the Mass-Man is 
an organic demand higher than the 
demands of unit workers for their own 
living and includes all raw material for 
capital. 

To hold each product, in its due pro- 
portion, to supply the multiple needs of 
the Mass-Man, each class of goods is 
given its proportionate share in a fixed 
supply of money to buy what the whole 
mass needs and this money must ren- 
der profit. The limit in quantity of 



COST OF LIVING 35 

money, to buy the daily living for all 
the people will buy only an exact pro- 
portion of each line of goods, and as 
the social organism needs more of one 
special class its price will rise leaving 
less money to spend for something else, 
the price of which must therefore fall. 

It is utterly impossible for any hu- 
man brain to estimate the cost of any 
article in the market, where fertility of 
soil makes a barrel of oil cost fifty 
thousand times more at one oil well 
than another. What is true of fer- 
tility mixing up costs for oil is equally 
true for wheat, coal, and for all soil 
products, and for most machine made 
goods. 

While it is utterly beyond human 
power to estimate production cost for 
any class of goods in the market, it is 
quite a simple matter to establish a 
cost basis for all goods, and to make 
each class confine its cost to that base, 
by making the cost of living for all the 



36 SCIENCE OF VALUE 

people the base for total cost of sup- 
plies. 

It is easy to discover that wages 
paid, in any case, is labor cost, and the 
money spent for living by all the people 
is cost of living for the body politic. 
Wages must balance with a certain 
standard of living based upon our de- 
gree of civilization, which is based 
upon the species of social organism our 
civilization has achieved. 

Each class of goods must carry its 
own supply of money in its price, col- 
lect the money from consumers and 
return it to channels of circulation to 
again buy the same supplies in greater 
or less quantity as the whole organism 
may direct. 

There are two costs to everything 
sold for money in the consumers mar- 
ket, both are labor costs, one is cost of 
labor producing the total living, and 
the other is cost of all other labor 
which is advancing the standard of 



COST OF LIVING 37 

living. These two labor costs estab- 
lish a standard market price of two 
times cost of production, but allows 
any class of goods to rise or fall. 

The most necessary product is the 
food supply which must be distributed 
every day and cannot be postponed, 
and to have the most abundant sup- 
plies for an increase of population the 
natural law confines labor to the most 
fertile lands by only allowing the quan- 
tity of money a government may coin 
to circulate as the cost of living, thereby 
forcing all other payments to be made 
with credit money. 

If the labor that produces all the 
food received all the money to buy it 
back, he could use less than half of it 
and half the people would have no 
money for a living and half the sup- 
plies would rot for lack of a market. 
To give all labor its proportion of total 
food the limit of food money is divided 
and only half the cash is allowed to the 






38 SCIENCE OF VALUE 

labor producing all the living, and the 
price rises to two times cost thereby 
setting aside half the money and half 
the living for labor that must find other 
work. 

When a land owner employs labor to 
produce food he must pay that labor a 
wage equal to its standard of living 
and therefore the fertile land must 
produce a surplus above the living of 
its labor. The land owner having the 
surplus living as profit will employ 
surplus labor as his personal servant 
or to build upon and otherwise improve 
his land. 

It is self evident that any product of 
secondary labor, whose living comes 
from primary labor working the fertile 
land, must cost the land owner two 
units of living, one unit of living for the 
primary worker, and one unit from 
surplus paid as wages to the secondary 
worker, hence all capital has at its 
foundation the same sea level price of 



COST OF LIVING 39 

two times cost, measured by cost of 
living. 

This double cost, of two units for 
capital, provides money for two classes 
of labor to buy back the buildings sent 
to market from money the buildings 
sell for, when they sell for two times 
cost, the same as two times cost of 
goods supplies the money for two 
classes of labor to buy back all the 
goods sent to market. 

It is easy to see that the cash paid 
out to labor producing goods, will be 
spent in buying the same goods and 
will return again for the same employ- 
ment, but it is not easy to see how the 
money paid to doctors, lawyers, teach- 
ers and the like, which they spend for a 
living is made a part of the market 
price of goods and how it returns from 
the market to again pay them. 

Money, when in hand to hand use 
every day, paying labor and buying a 
living, is money in direct action meas- 



40 SCIENCE OF VALUE 

uring the cost of labor, and the price 
of goods as a yard stick might measure 
endless yards of cloth. But when 
profits in cash are taken from sales of 
goods, that cash was paid by secondary 
labor who produced none of the goods, 
and it must return to buy goods by 
what may be called reflex action, in 
spending profit money. 

When the natural law draws a line 
separating costs from prices above 
cost ,the profit money goes to a bank to 
become a book account or credit, and 
the cash should immediately return to 
become wages for secondary labor. 
By establishing banks we permit 
"time" for money to circulate and 
buy other things than a living. Banks 
provide money to buy capital and 
thereby employ surplus labor in build- 
ing capital and pay labor operating 
and maintaining capital. 

With rich farming lands, oil and min- 
ing lands, towns, cities and factories 



COST OF LIVING 41 

connected by railway systems, a very 
large part of the people find work in 
operating and maintaining capital and 
their work depends, not upon the direct 
circulation of cash, but upon the reflex 
circulation of profits which creates 
another circulation of bank check or 
past-labor-money equally as important 
as government cash. 

The moment we pass from the mere 
satisfaction of animal appetites in the 
supply of simple food, we develop un- 
limited varieties in food and clothing 
and in new forms of capital calling for 
the enormous energy of natural forces 
working with steam and electricity 
which would give an unlimited market 
to labor did not the human law inter- 
fere with the natural order of evolution. 



CHAPTER 3 
Capital 

Capital plays a very important part 
in the cost of living for without it we 
cannot rise above the savage, but when 
capital appears money begins to play 
its most important part, for without 
the profits from capital there could be 
no payments of interest upon which 
the circulation and value of each dollar 
is based. 

Money must have "time" to pass 
around its own circle or exchange, to 
be earned and spent and earned before 
it may again be spent, but money that 
must buy the living for all the people 
is not given "time" to so circulate and 
for that reason it must be supplied in 
such quantity, and be held in such 
pools that it will instantly buy a living 
every day without waiting on dollars 
moving around the circle. 

42 



CAPITAL 43 

The merchant finds all the cash 
money in use, either in the pockets of 
the people or in pools in banks waiting 
to takes its place for spot payments, 
and he must find other money to pay 
cost for goods before he can sell the 
same goods and return the cash to the 
hands of labor. 

The banker, having cash on hand, 
as a reserve, which is not in use every 
day, can finance the merchant and 
give "time" to allow goods to be 
bought and sold, and be paid for with 
the cash collected from consumers. 

This "time" has a value for waiting 
goods the same as the "time" con- 
sumed in producing the same goods, 
and "waiting-time" is paid with profit 
received by the merchant on each dol- 
lar of cash. 

Money would not pass from one per- 
son to another, from the merchant to 
the employer of labor, and from the 
banker to the merchant, unless each 



44 SCIENCE OF VALUE 

dollar sold for more than it cost, the 
same as goods moving from producer to 
consumer must sell for more than cost, 
it is pennies of interest, added to each 
dollar of cash, that sends it around its 
circle from hand to hand. 

The rate of interest gives life and 
power to a quantity of money earned 
by labor of the past that otherwise is 
dead, a five per cent rate of interest 
means that $100.00 of capital money 
is given the power to circulate, at a 
value measured in cash. 

LIVING WITHOUT WORKING 

In trying to solve the labor problem 
Lenine determined that no one should 
have a living without working, and 
nothing he advocated was more vio- 
lently opposed by natural law than 
that foolish theory. 

Living without work existed for all 
living things thousands of years before 
human beings could talk, and discuss 



CAPITAL 45 

Bolshevism. Birds and animals and 
millions of savages now live on the free 
bounty of Nature without an employer 
to make them work. 

Unless the human law will permit a 
certain proportion of living to provide 
leisure, unless we permit money to 
circulate to buy leisure, by exchanging 
capital for its value in money, the nat- 
ural law will not permit the worker to 
get the high wages he otherwise would 
have. 

Fertility of soil provides an overflow- 
ing abundance by using only a part of 
labor to provide a living for all, and 
capital with its machinery can only 
exist by adding to the abundant living. 
There is no injustice in setting aside a 
certain portion of the total living to 
provide leisure and to become a re- 
ward for speeding up the development 
of civilization by the increase of wealth. 

There is no basis for the absurd the- 
ory that because a rich class live in 



46 SCIENCE OF VALUE 

luxury without working, the poor are 
deprived of a decent living. The fact 
is that the living set aside as a reward 
to produce capital is so abundant, that 
when wealth concentrates, we find a 
small rich class unable to consume the 
portion expected to be used for leisure 
which should go to millions of property- 
owners among the laboring class. 

The natural law draws a line sepa- 
rating the living by working from a 
living without working, a line that sep- 
arates commodites from capital by 
confining cash to the sole function of 
buying the living, requiring capital to 
be bought and sold with past-labor, or 
credit money. 

Labor first gets control over the cash 
that buys the total living, with no part 
of that cash set aside for the owner of 
capital, and the riddle of centuries has 
been to discover how labor loses con- 
trol over capital and was never able to 
buy its share of wealth and thereby 



CAPITAL 47 

secure its share of the leisure provided 
for by the natural order. 

When total cash is paid out to labor 
it buys back all the living, but it must 
buy at two times cost. Selling a living 
at two times cost creates a cash profit 
by putting half the cash in the hands 
of merchants and others as having no 
cost in labor. Profit in cash must then 
create a supply of past-labor, or credit 
money, and somehow labor has lost 
control over the supply of past-labor- 
money created from cash profits. 

Profits in cash taken from consumers 
may directly buy a living without 
work, but they are much greater than 
the owners need for a living without 
work. To secure a future living with- 
out work profit must be used to create 
capital which will collect an income for 
an indefinite time in the future, and 
capital arises from the desire to secure 
a future living without work. 



48 SCIENCE OF VALUE 

THE RATE OF INTEREST 

If capital is to provide its owner a 
living without work the profit it col- 
lects must return more money than was 
paid to labor as cost in building capital, 
and to secure this greater return than 
cost, the natural law divides profits 
into two equal parts, so that half will 
return the cost of capital and the other 
half will pay for a living without work- 
ing, and by so dividing total profit the 
natural law creates a rate of interest 
equal to half the rate of profit. 

The rate of interest is so established 
by natural law that it is always half the 
rate of profit on capital when consid- 
ered as a whole. The cost of capital 
is fixed by its cost in interest, because 
"time" is taken to return the cost of 
capital from collections of interest 
which always pays for "time" of 
waiting. 

When the rate of interest is ten per 
cent for example, capital must select 



CAPITAL 49 

land so fertile that it will collect twenty 
per cent on its cost, pay ten per cent 
interest for the use of the money each 
year; and ten per cent to revolve a sup- 
ply of money that will return its cost 
and repeat the circulation for a new 
building every ten years. 

Labor is expected to sell a living 
without working to the capitalist by 
selling interest money as cost of capital, 
and by having one-fourth the total 
living to sell as " leisure' ' each year. 
With the rate of interest at ten per 
cent, each ten dollars of leisure money 
for one year calls for an investment of 
one hundred dollars from capital which 
calls for one hundred dollars spent in 
wages for each ten dollars of interest 
each year at the ten per cent rate. 

Should labor be able to sell one- 
fourth the total living each year; as 
leisure, in the United States at this time 
it would have about eight billion dol- 
lars worth of interest money to sell, and 



50 SCIENCE OF VALUE 

it would circulate forty billion dollars 
worth of capital money so that invest- 
ors could collect the eight billion dol- 
lars of interest. This capital market is 
the market labor has lost, the market 
in which it should sell the easy living 
enjoyed by the owners of wealth. 

When a country is new, it has little 
capital and its standard of living is 
low, fertile lands will produce an enor- 
mous surplus but most of the labor will 
be idle or wasted. When surplus liv- 
ing is used to employ surplus labor in 
building and improving lands then 
capital, trade, and manufacturing de- 
velop, cities grow, the standard of liv- 
ing will begin to advance and wages 
also will advance. 

Suppose for example, total wages in 
a newly developing country, like an 
early date in the United States, is two 
billion dollars a year, which sum is 
spent by labor as its cost of living. 
Two billion dollars in wages spent by 



CAPITAL 51 

two classes of labor will buy what cost 
one billion dollars to produce. The 
living sold for two billion will develop 
one billion dollars profit if capital has 
been able to mobilize business on the 
best locations and save the surplus 
labor for other work than providing a 
living. 

The profit of one billion dollars is a 
base profit of one hundred per cent, 
and will pay one hundred per cent, on 
a cost of capital equal to one billion 
dollars, or fifty per cent interest on a 
selling price of two times cost. 

Goods get a standard price of two 
times cost by merely dividing total cash 
into two equal parts, one half paying 
cost of half the labor, forcing all the 
cash to be spent as cost of living for 
all the people. 

The fact that government money, 
coined or printed, can only be spent 
for total living, makes every rise in 
wages balanced by an equal rise in 



52 SCIENCE OF VALUE 

cost of living, until the highest stand- 
ard of living has been reached by the 
growth of capital and by the accumu- 
lation of wealth. 

Every attempt to supply more 
money by an inflation of cash rarely 
relieves a stringency of money, but is 
always offset by an equal rise in cost of 
commodities, for when total cash is 
doubled total wages and total cost of 
living must also double. 

The chief concern of labor is to dis- 
cover how wages may rise without an 
equal rise in cost of living so that a 
surplus in wages may buy a share of 
the capital that will give a living with- 
out working to the laborer. 

When capital is developing in a new 
country the profits are one half the 
money spent as cost of living, and cre- 
ate a very high rate of profit on a small 
total of capital, which will hold rates 
of interest high until the growth of 
capital brings down the rate of profit. 



CAPITAL 53 

High rates of profit will soon double 
the quantity of capital where fertile 
lands may be obtained, when capital 
has a cost equal to the cost of living for 
one year it will have a profit of one 
hundred per cent, but to double the 
quantity of capital will cut the rate of 
profit to fifty per cent when no advance 
has been made in the sum spent for 
total living. 

The rule which governs the rate of 
profit and interest is based, like the 
rule governing wages, on the fertility 
of soil, capital must improve the fer- 
tile lands, and may only improve such 
lands as will pay two times the rate of 
interest on the cost of the improve- 
ment. 

The rule is that capital collecting one 
hundred per cent profit will get one 
hundred per cent when the cost of that 
capital is equal to the cost of living for 
one year, for example, with living sell- 
ing for two billion dollars paid in 



54 SCIENCE OF VALUE 

wages the fertile lands developed by 
capital will allow the most favorably 
located capital to collect all the profit 
and pay an average rate of one hun- 
dred per cent with capital and living 
each having a cost of one billion, but 
each having a selling price of two bil- 
lion dollars. 

This very high rate will stimulate 
the growth of capital until it becomes 
two times the cost of living for one 
year, and thus force the profit to spread 
over two times as much capital as be- 
fore and cut the rate from one hundred 
to fifty per cent, with the rate of inter- 
est keeping at half the rate of profit, 
or twenty-five per cent. 

When total capital accumulates to 
four times the cost of living for a year 
the profit it collects must spread over 
four times as much capital and the 
rate of profit is cut from one hundred 
to twenty-five per cent, while interest 
is cut from fifty to twelve and a half 



CAPITAL 55 

per cent. Wealth and capital increas- 
ing to eight times the cost of living for 
the year will cut the rate of profit to 
spread over eight times that volume 
and cut the base of one hundred per 
cent into eighths, or twelve and half 
per cent with the rate of interest fol- 
lowing to six and one-fourth per cent. 

The lower rates of interest on capi- 
tal come from commerce where capital 
in ships and merchant stocks gets the 
early profits from expanding trade, 
and where banking enables trade to 
extend, advancing money for new cap- 
ital by cutting the rate of interest. 

When a merchant must buy goods 
from an employer of labor he will dis- 
cover the total cash is in the pockets of 
the people, or is waiting in pools at 
banks to take its turn in the daily pay- 
ment of wages and daily buying a 
living, that no cash is to be had to buy 
goods in advance of selling them to 
labor and other consumers. 






56 SCIENCE OF VALUE 

The banker with his pools of cash is 
in a position to insure the payment of 
cash at a future time when the mer- 
chant sells his goods, hence he can 
advance spare cash from his pool, or 
give credit based upon his cash, and 
the merchant buys in advance to sell 
at two times cost and thus collect the 
cash that must be used over again. 

The merchant pays interest for 
"time" in the circulation of money, 
for "time" that goods must take in 
passing from producer to consumer, 
"and this 'time' of moving goods" has 
a value equal to the time consumed in 
producing goods and "interest" pays 
for the "time" so consumed. 



CHAPTER 4 
Rotating Capital 

The money spent for capital must 
return to be used over again in paying 
wages the same as the cash spent for 
goods, but a different supply of money 
must be provided for this purpose be- 
cause cash is limited to returning to 
pay the cost of living and cannot sup- 
ply money to buy or build capital. 

The money advanced to pay labor 
for the material and cost of capital 
may be returned by the sale of the 
completed capital the same as cash re- 
turns by the sale of goods to consumers, 
but it must rotate from the profit it 
collects because capital is not con- 
sumed and reproduced like goods every 
time its money changes from producer 
to consumer. 

A man borrows to build the same as 
a merchant borrows to buy goods, the 

57 



58 SCIENCE OF VALUE 

builder should return the borrowed 
money from a sale to consumers of 
capital. Although we may say a man 
need not borrow to build, but has the 
money to his credit in bank, his own 
money is advanced to him by a natural 
law, the same as if he borrowed credit 
from the bank, he only escapes paying 
interest. 

Borrowing to build requires the pay- 
ment of interest for the time the money 
is used by the builder the same as by 
the merchant, but as buildings are not 
consumed and reproduced once a year 
the circulation of capital money is much 
more complicated than cash and de- 
pends upon profits of capital. 

If capital can only collect a sum each 
year to pay interest on its own cost, it 
is as simple as can be that no quantity 
of capital money can rotate like cash 
rotates, and capital cannot be distri- 
buted to new owners like goods are- 
distributed to new owners. 



ROTATING CAPITAL 59 

If the cost of a building is ten thou- 
sand dollars and the rate of interest is 
ten per cent, the building must collect 
rents of one thousand dollars a year 
to pay interest alone, and an equal one 
thousand dollars a year to return and 
rotate the cost money, or principal once 
in ten years, and, therefore, capital 
must be so located that it will collect 
two times the interest on its cost. 

When the rate of interest falls from 
ten to five per cent the cost of capital, 
measured by income, is cut in half and 
the quantity of capital on fertile loca- 
tions is expected to double, and lands 
only half as fertile will then be open to 
the development of new capital, while 
old buildings on valuable locations 
should be torn down and be replaced by 
new buildings offering more space on 
the best locations. 

There should be no scarcity of land 
on which to build an unlimited supply 
of capital, as there is scarcity of land 



60 SCIENCE OF VALUE 

to produce corn, or wheat, or coal, be- 
cause the cost of labor does not become 
the basis of profit for capital as it does 
for goods, and because the cost of capi- 
tal falls as the rate of interest falls. 

The production of capital should be 
just as profitable on poor land as upon 
the most fertile, while with goods the 
poor lands return no profit and cannot 
be cultivated. An acre of land that will 
only collect ten dollars a year profit 
may demand a hundred dollars of cap- 
ital to improve it while other land in 
cities may demand a million dollars of 
capital for each acre built upon. 

It is extremely doubtful if total 
wealth in any country can ever be more 
than ten times the annual cost of liv- 
ing, for at eight times cost of living the 
rate of interest falls to six and one- 
fourth per cent and at sixteen times 
the rate would be slightly more 
than three per cent and would be too 
low for replacement. In the United 



ROTATING CAPITAL 61 

States, for example, in 1918, a circula- 
tion of about five billion dollars of gov- 
ernment cash rotating six times that 
year established the cost of living at 
thirty billion dollars or six times five 
billion of cash. Having a base cost of 
living at thirty billion the total profit 
in that year was half this sum or fifteen 
billion dollars, while the total capital 
at two hundred and forty billion must 
accept an average rate of profit of 
about twelve per cent on cost or six 
per cent interest. 

The rise in standard of living puts 
a stop to the increase in quantity of 
capital because the accumulation from 
the past takes up all the labor that can 
be spared from providing the higher 
living, taking all spare labor to main- 
tain and operate capital, with no labor 
to increase the total. 

To build towns and cities, railways 
and factories demands credit money to 
be advanced by the billions, which 



62 SCIENCE OF VALUE 

money must have time at its disposal 
to return and be used again. Advance 
money calls for a reflex circulation 
when compared with the simple and 
direct circulation of primary govern- 
ment cash. 

The rotation of credit is reflex be- 
cause the natural law will not permit 
a government to print capital or prop- 
erty money or give it power, it must 
depend upon the profit supplied by 
cash before it will appear and before it 
can circulate. Profit in cash, taken 
from the cost of living, represents 
wages of the labor that produces none 
of the goods it consumes, it has a re- 
flex action because it buys a living 
without working for the capitalist 
while the cash must buy a living by 
working for the laborer. 

The value of past labor must in some 
way exchange for the value of present 
labor if past labor money is to buy 
present goods and, therefore, the value 



ROTATING CAPITAL 63 

of capital is based upon the profits 
taken from present cost of living. 

Capital is bought and sold with past- 
labor-money, or credit money that 
must be exchanged for cash or living- 
labor-money to keep the value of capi- 
tal at par with the value of goods as 
shown by the cost of living. 

A building costing ten thousand dol- 
lars will find past-labor-money wait- 
ing as bank deposits, payable on de- 
mand in living cash. A builder should 
find it as easy to borrow capital money 
as a merchant finds it easy to borrow 
commodity money, and a bank would 
find building loans as quickly paid as 
are commercial loans, if the rotation of 
credit was allowed to follow its natural 
channels. 

A bank charging ten per cent inter- 
est cannot wait ten years for a return 
of the principal and take only the inter- 
est during the waiting period, nor can 
a builder wait ten years while a build- 



64 SCIENCE OF VALUE 

ing is collecting and discharging its 
loan to the bank, although he becomes 
the owner at the end of the period. 

But if a building will rotate its own 
value in returning its cost money with 
interest there is no need of a builder 
or banker waiting during a ten year 
period. The quantity of credit money 
is intended, like the quantity of cash, 
to anticipate all future demands upon 
it. If one building costing ten thou- 
sand dollars will return its cost in ten 
years, ten such buildings will return 
the cost of one each year, and the con- 
stant accumulation of buildings re- 
turning their cost should keep all the 
money in circulation labor may need 
for building purposes. 

When a builder pays out cost there 
is no waiting, because he can only pay 
out cash that keeps turning over every 
day while the money to buy the com- 
pleted building must come from past- 
labor-money which is given one year 



ROTATING CAPITAL 65 

to make a complete turn-over in buy- 
ing all the capital labor can produce in 
one year. 

Each building must stand as clearly 
upon its own money foundation as it 
stands upon its stone foundation, it 
must supply all the money it takes from 
the stream of circulation so that each 
building will create its own rent money 
and will not take the cash that buys a 
living. 

A quantity of credit is always on 
hand in banks where there is a bank- 
ing system and where capital and trade 
has developed. The banking system 
of a country is expected to supply all 
possible demands upon it for building 
or other capital purpose. Our failure 
to supply capital money for building 
is not found in any lack of bank deposit 
credit but in a failure of bank credit 
to rotate and distribute wealth to new 
owners. The supreme failure that de- 
stroys one nation after another is a 



66 SCIENCE OF VALUE 

failure to distribute wealth; and which 
failure allows wealth to concentrate in 
absurd fortunes to a small class of 
owners. 

The rotation of any quantity of gov- 
ernment cash is quite simple, it is paid 
out in wages of every description, in 
the United States for example, at a 
rate of about one hundred million dol- 
lars a day to about forty-five million 
wage earners, with a wide variety in 
rates of wages, but creating a standard 
rate of wages for total labor equal to a 
standard living for all the people. 

If it was possible to collect, from 
forty-five million wage earners, the 
one hundred million paid to them the 
same day it is paid, then the rotation 
of cash would close each day and the 
quantity of cash money would limit its 
own circle to the one hundred million 
dollars of cash. But wages paid today 
cannot be collected today from sales of 
goods, the cash scatters over the coun- 



ROTATING CAPITAL 67 

try, hence a quantity of cash must be 
provided that will keep paying one 
hundred million dollars each day until 
the spending will release the same 
amount each day, and then the circle 
will close; this period is about fifty 
working days or six times a year. 

It is easy to see how cash rotates in 
paying wages and buying goods, and the 
revolution of credit would be as simple 
if capital had its natural market and 
sold at two times its cost the same as 
goods sell in a natural cash market at 
two times cost. 

From each hundred million dollars 
worth of goods sold each day there is 
taken a cash profit of fifty million dol- 
lars which creates credit of ten or more 
times the profit, each dollar of cash 
profit may become the foundation for 
ten dollars of bank credit. 

Just as we must have a quantity of 
cash and not wait for its return from 
labor; have a sixty day supply; so also 



68 SCIENCE OF VALUE 

we must have a supply of credit wait- 
ing to be cancelled by fifty million dol- 
lars of profit money each day. The 
supply of bank credit waiting to ex- 
change for cash, and be cancelled, will 
perform all the functions of cash except 
to buy the living from day by day, it 
will do all property buying and will 
distribute wealth to new owners; it 
will buy goods in advance of their being 
sold to consumers. 

The banker soon discovers that he 
does not need one dollar in cash for 
each dollar he promises to pay in cash 
on demand, bank profit is based upon 
building up a deposit and loan account 
to the limit of a supply of cash which 
will permit the required quantity credit 
money to get into circulation. 

The rotation of bank deposit credit 
depends upon capital being sold at two 
times its cost, the same as goods are 
sold; the builder should borrow to build 
the same as a merchant borrows to 



ROTATING CAPITAL 69 

buy goods to sell. The banker learns 
from experience that building loans are 
extremely dangerous because they are 
seldom paid and soon tie up his liquid 
credit and it then becomes impossible 
to supply the needs of merchants. 

The banker failing to revolve his 
total deposits once a year will revolve 
a small part in merchants loans, and 
thus will allow investment and saving 
banks to make building loans. Revolv- 
ing credit by establishing permanent 
debts which soon consume all the credit 
commerce may spare, and then debts 
destroy the circulation of credit bring- 
ing about a monetary panic. 



CHAPTER 5 
The Cost of Land 

If the field for the production of 
capital was open to the builder, the 
same as the field for the production of 
goods is open; if the builder had a nat- 
ural market for capital like the natural 
market for goods the builder would 
then have a cash market in which 
there will be no competition as we now 
use that word, everything labor could 
produce would find buyers at two times 
cost, and land could not be sold for 
any value in money. 

Give the builder his natural market 
and the insatiable demand for wealth, 
which is but a desire to live without 
work, will keep labor fully employed 
at the highest rate of wages society 
can pay. Capital would then supply 
half the money required to pay the 

70 



THE COST OF LAND 71 

high rate of wages and this capital 
money would add nothing to the cost 
of living. 

The profit from selling capital at 
two times cost will supply an endless 
stream of credit money with which to 
buy capital like cash buys a living. 
Capital profit can not be cancelled by 
exchanging for cash to buy a living as 
cash profit taken from the sale of a liv- 
ing must be cancelled. 

Measuring wages with cash is meas- 
uring by direct action when cash is used 
but measures by reflex action when 
credit does the work. Cash in direct 
action measures wages like a yard 
stick will measure endless bolts of 
cloth, as wages or goods come under 
the measure they are taken away to be 
consumed, with the measure remaining 
constant to be used over and over dol- 
lars of cash being in perpetual circula- 
tion. 



72 SCIENCE OF VALUE 

Cash units like a cell of protoplasm 
have what we may call immortal life, 
and once in existence they supply the 
body politic with a living for all time, 
while credit units like tissue cells are 
mortal and belong to that part of the 
social body which is constantly chang- 
ing, credit dollars being born only to die 
and return by a new birth from cash 
profits. 

Capital, as a whole is never con- 
sumed like goods are consumed, the 
part that is consumed must be renewed 
and in being renewed is measured by 
so many dollars of credit money which 
is consumed in order to measure and 
permit the value of capital to remain 
unimpaired thus endowing the social 
organism with an objective body that 
has continual life, endowing society as 
a whole with immortality. 

Unfortunately for mankind the 
builder was never given free field and 
its natural market, every government 



THE COST OF LAND 73 

in the world is faced with the dire ne- 
cessity of establishing this free market 
for capital or perish from the face of 
the earth. 

Consider a free capital market in a 
city like New York, the potential power 
the city holds for new building is shown 
where old and dilapidated structures 
now disgrace the principal streets and 
collect high rents from the most de- 
sirable locations without supplying the 
buildings the rent calls for and for 
which the public pays. 

The average height of buildings on 
the most fertile building ground in the 
world — Manhattan Island — is about 
four stories above the street, when the 
demand, on the same ground, would 
send the average height to sixteen 
stories above the street. A free capi- 
tal market would rebuild New York 
City from its very foundation leaving 
but a score or so of its present struc- 
tures standing. 



74 SCIENCE OF VALUE 

When a builder would convert the 
fertile rents of a city location into a 
building, and supply a structure the 
public pays for, he is stopped short by 
a cost for land in advance of building 
that utterly destroys all profit in sell- 
ing the building at two times cost, for 
land takes one time cost of the best 
building each location will support. 
Forcing capital to sell at labor cost 
keeps the average rate of wages from 
rising higher than the cost of living, 
which covers the cost of capital, and 
before the average rate of wages may 
rise above cost of living capital must 
sell at two times labor cost 

When land became private property, 
its fertility soon gave the owner a 
power to take all gains above a living, 
and when the natural law gave com- 
merce a profit of one hundred per cent 
on the cost of goods the land owner 
was in a position to demand money 
for the fertile land that provided such 
profitable fields of production. 



THE COST OF LAND 75 

In a city the owner of the site will 
demand as advance cost of land a sum 
equal to the most expensive structure 
that may be built upon the land, and 
failing to pay that price building comes 
to an end. 

When a land-owner may demand a 
sum equal to the cost of any building 
and take half the rent the building col- 
lects such a demand is opposed by the 
natural law regulating the circulation 
of credit money. No money will cir- 
culate to pay such a cost for land, be- 
cause it is limited to buying things that 
are continually consumed and repro- 
duced by employing labor; buying land 
interferes with the flow of money from 
the markets back to labor because labor 
does not produce land and because land 
is not consumed. 

The natural law will only supply 
the cost of building although it may 
sell at a profit and therefore the land- 
owner must take a mortgage to cover 



76 SCIENCE OF VALUE 

the cost of his land, which mortgage 
promises to pay money that can not be 
had at some future time. 

Forcing the builder to pay a cost for 
land in advance of building forces up 
the cost of land and crowds one build- 
ing against another, using the least 
amount of land on which to erect, the 
poorest building that will collect the 
highest rent. If all buildings sold at 
two times cost with no cost for land, 
there would be no loss to the owner 
because each building would be built 
to the limit of its location and instead 
of having a land value under each 
building that same value would appear 
as a selling price of each building above 
cost. 

Selling buildings at two times cost 
would force the most expensive build- 
ings to occupy the sites that get the 
most rent, which would give the great- 
est benefit to the tenant. A building 
costing ten thousand dollars, for ex- 



THE COST OF LAND 77 

ample, and selling for twenty thous- 
and dollars will return but ten thous- 
and dollars profit, while a building 
costing ten million dollars and selling 
for twenty will return ten million dol- 
lars profit, giving the owner the great- 
est profit when he selects the most 
expensive building that may be sold 
at two times its cost. 

The enormous profit on great build- 
ings provides an ample fund to beau- 
tify them, to give all manner of ad- 
vantage in modern improvements and 
plenty of land for light and air and for 
the best architecture. 

Building to the natural and most 
profitable height on Manhattan Island, 
as an illustration, would make land so 
plentiful as to seem now unbelievable, 
for with a height of sixteen floors in- 
stead of four, two times the present 
population could live in the greatest 
comfort on only half the land now cov- 
ered with buildings. 






78 SCIENCE OF VALUE 

The builder is now handicapped so 
that he has no field of operation like 
the producer of goods. First he must 
have two times the cost of his building 
before he may break ground, practic- 
ally an impossible condition, and next 
he is expected to sell his product at 
cost, another outlandish requirement, 
and then the investor is expected to be 
satisfied with interest payments alone 
and never see the return of the prin- 
cipal. 

Under the conditions imposed by a 
cost of land, building only takes place 
in an active land value and real estate 
boom, where profits come from a rise 
in land value, which follows new build- 
ing. The profit from a rise in value of 
land may replace the natural profit in 
selling buildings at two times cost for 
a short time. As "no tree grows so 
high as to quite reach heaven/ ' so land 
values cannot keep going up indefi- 
nitely to give profits to builders, and 



THE COST OF LAND 79 

at the top of the boom the bubble of 
land speculation bursts with a panic, 
and a period of hard times follows with 
millions of laborers out of work. 

Debts must carry the cost of land 
and they must keep accumulating until 
capital carries all the debt it can col- 
lect interest upon from the extra fertile 
locations. Debts consume the interest 
that is expected to keep an equal sum 
of credit rotating once every year by 
paying wages. 

Before debts reach the absolute limit, 
by taking all the interest above actual 
cost of capital, they bring about a con- 
traction of bank credit because the 
banks find deposits tied up with debts 
that cannot be paid; the liquid credit 
of commerce has been converted into 
bonds and mortgages promising to re- 
turn credit in ten or more years in- 
stead of returning it in sixty days or 
one year according to natural law. 



80 SCIENCE OF VALUE 

It is quite easy to prove how debts 
destroy liquid credit by keeping it from 
turning over. There is a limit to total 
credit, the same as there is a limit to 
total cash, and if credit is to be used 
over and over again, as cash is used, it 
must be set free at least once each year, 
to balance the capital consumed that 
year, and by its own rotation once a 
year pay a sum in wages equal to the 
capital consumed. 

In the United States, for example, 
railway, city and industrial bonds 
amount to about twenty billion dol- 
lars worth and represent money once 
used to pay the cost of building, such 
bonds promise to return the cost money 
they consumed in periods of ten to 
fifty years, but cannot return any of it, 
while it should return once a year if 
labor is to have a free field and capital 
is pay for its own labor. 

Under natural law the interest paid 
on twenty billion dollars gives valu e 



THE COST OF LAND 81 

and power to that sum of credit money 
once every year, but when debts prom- 
ise to return the money in the future 
and consume the interest each year, 
while holding the money out of circu- 
lation, the loss to labor each year is 
measured by the total debt. 

Suppose the twenty billion of bonds, 
and other debts, promising to return 
credit in ten or more years was paid, 
it is plain that twenty billion dollars 
could not be paid by the cash in use 
and it should be equally plain that to 
pay such debts would merely release 
that sum of credit money to again 
build new capital, or become new 
debts. 

Debts cannot return billions to im- 
mediate circulation any more than 
they can be immediately paid in full, 
but they may be made payable in cash 
on demand, and thus change from dead 
into living capital and rotate that sum 
of money once each year. 



82 SCIENCE OF VALUE 

Debts should not be made an excep- 
tion to other forms of capital in any 
•corporation, to make debts payable on 
•demand will call for a similar payment 
from all other securities. Instead of 
having cats and dogs, in the form of 
common stock and second preferred 
and first and second bonds, there 
should be but one class of capital se- 
curities as there is one class of bank 
deposits to be kept always at par and 
always payable on demand, protected 
by the required reserve. 

Every owner of a capital security 
should own an equal part of that capi- 
tal with no preferred stock, mortgage or 
other claim to destroy the value of his 
holding. Debts violate the natural or- 
der by giving one class of security 
owners a preferred claim upon the 
money invested by other classes. On 
this account capital has no market, 
except from speculation on the stock 
exchanges because the preferred cred- 



THE COST OF LAND 83 

itor may take the property at one half 
or less of its true value when the pre- 
ferred lien falls due and cannot be paid. 
When a man's money is on deposit 
in a bank, it is to the banks interest, 
and to the government's interest to 
keep his claim upon money at par and 
equal in every bank. But deposits can 
only be held at par by being payable 
on demand from the cash reserve held to 
meet such payment. When a man's 
money is taken from the bank to be 
invested in capital it is taken for a 
higher use, and should be even more 
carefully protected by the banker and 
the government than when it was on 
bank deposit, but all safeguards for 
investors have been abandoned leaving 
them at the mercy of any financial 
pirate who may loot a corporation by 
manipulating its common and pre- 
ferred securities. 



CHAPTER 6 
Solving It 

It is a mistake to assume we have a 
labor question to solve, a money ques 
tion or a land question, and it is an 
equal mistake to assume that govern- 
ment ownership, profit sharing and the 
like will solve our problems. It is not 
one or the other problem that disturbs 
the body politic but a vital disease, and 
although each symptom seems to pre- 
sent a problem or disease by itself, 
there is only one way to overcome dis- 
ease and that is to remove the cause 
and restore health. 

No matter how grave may be the 
condition of the patient how painful 
his suffering, he can mend only as fast 
as the body may return to its normal 
functions and absorb the poisons that 
have been so long accumulating. 

84 



SOLVING IT 85 

The great symptoms of social dis- 
ease are found in debts, in the cost of 
land, in unemployed labor, and in the 
loss of a capital market. We cannot 
obtain health by passing laws to abolish 
debt, to abolish property in land, or 
destroy its cost, we cannot decree a 
market for capital by statute nor find 
artificial employment for the labor that 
happens to be out of work at different 
seasons in good or bad times. 

Whatever difference of opinion there 
may be about theories of profit sharing, 
government ownership, socialism and 
the like, there is no dispute about the 
pressing need of always having plenty 
of work at good wages, the need of find- 
ing fields of work that will, at once and 
forever, remove the menace of mil- 
lions of laborers being suddenly thrown 
out of work. 

Work is being suggested in every 
imaginal line, not the natural and pro- 
fitable work that always keeps the ma- 



86 SCIENCE OF VALUE 

jority active, but some kind of artifi- 
cial stimulus merely to act as a stop 
gap to the tide of swelling discontent. 
No one seems to be aware of the fact 
that under natural conditions there 
would be no idle labor such as we have 
in our most prosperous times. 

About ninety per cent of labor is 
always profitably employed by pro- 
duction under control of natural law, 
without an effort from the government 
or any other agency to find work. 
Employers hunt the labor to get the 
profit, and it is a simple rule to follow, 
— if 90 per cent may be profitably em- 
p^yed under a law that seeks to em- 
ploy one hundred per cent why not 
discover what interferes with that law 
and keeps ten per cent always idle and 
always competing? 

To find profitable work for one hun- 
dred per cent of labor at all times is to 
find a field of employment that will 
take up the idle labor in all fields. 



SOLVING IT 87 

Taking up the idle surplus makes labor 
scarce in every occupation and will in- 
crease the demand for labor so that 
each occupation will find none of its 
labor out of work. 

The fundamental employment which 
will give permanent prosperity must 
first provide the highest possible living 
for all the people, and second must pro- 
vide an unlimited demand for all spare 
labor in the capital market. This fun- 
damental demand divides labor into 
two great classes, one class employing 
all labor producing goods consumed in 
living and the other great class em- 
braces all other labor. 

Labor working on ships, railways, in 
city stores and the like depends upon 
the labor that sends goods to market, 
and likewise, lawyers, doctors, print- 
ers, and other like labor depends upon 
other classes of labor. 

In the two fundamental fields, pro- 
duction of goods and production of cap- 



88 SCIENCE OF VALUE 

ital, total labor must find its one hun- 
dred per cent demand. We must have 
a living at any cost, and, therefore, the 
lack of employment will be found in the 
capital or building market where de- 
mand may be postponed by debts 
which use the money that ought to em- 
ploy surplus labor. The natural de- 
mand for capital is insatiable when not 
interfered with it will take up all the 
labor that can be spared from produc- 
ing a living, and thus force wages to 
the highest rate the whole people can 
pay. 

The root of unemployment will be 
found in failing to build according to 
rents collected from the best locations 
in cities; in failing to convert each ten 
dollars of rent collected into one hun- 
dred dollars worth of building. To 
make a beginning in solving the labor 
question each city must attack its own 
problem of removing disgraceful shacks 
from valuable locations and replace 



SOLVING IT 89 

them with the buildings that belong 
there. 

A city has a natural market for labor 
greatly exceeding any supply of labor 
at its command, because in years past, 
it has failed to build, as the natural 
order demands, and has thousands of 
old buildings suitable to fifty years ago 
that should give way to new and bet- 
ter structures. This is the field that 
now may be opened as the most profit- 
able field to employ one hundred per 
cent of labor and keep them so em- 
ployed. 

If we would restore the capital mar- 
ket to labor, under natural law, cer- 
tain conditions are indispensable. 
First, a cost for land must not be taken 
in advance of building, land cost must 
not be allowed to interfere with build- 
ing. Second, money must be advanced 
from some source, in great quantity 
without creating debts; third; capital 
must have a market where new build- 



90 SCIENCE OF VALUE 

ings will sell for two times cost: sell in 
small holdings of one hundred dollar 
shares to many individual owners. 

Our failure to obey natural law has 
filled our cities with unsightly and dis- 
graceful shacks on the most desirable 
locations. Had we developed accord- 
ing to the natural order every city 
would be vastly different in all its 
building and so much more beautiful 
that it becomes difficult, if not impos- 
sible, to realize the change the future 
holds out for us. 

We are not expected to make this 
change in a day or a year, but only to 
pass to the higher civilization as we 
change from the old order into the new. 
It is not expected to abolish the cost 
of land, or property in land; to abol- 
ish debts, or to make a market for all 
capital at two times its cost at once. 

Only as fast as the body politic may 
assimilate the new order, the change 
may take place, which means only as 



SOLVING IT 91 

fast as we may rebuild our cities and 
farms can we remedy the present in- 
justice, change the present unjust dis- 
tribution of wealth to its natural and 
just distribution. 

The beginning must be made along 
lines of least resistance in cities where 
banking can most easily finance new 
buildings on the best location, and 
where building is most profitable. It 
is necessary to make such building prof- 
itable for the present owner of land 
and thus overcome the cost of land, 
because if the owner builds he has no 
cost of land to pay. 

A city is not expected to go into the 
building business but merely to act as 
agent and trustees; to provide the 
machinery by which land cost will be 
obliterated, by which money in abund- 
ance will be supplied, and create a mar- 
ket where all the securities for new 
structure may be sold, and keep se- 
curities payable on demand. 



92 SCIENCE OF VALUE 

A city must provide means to finance 
all buildings or other income capital, 
issuing and selling building loan se- 
curities, redeemable on demand f rcim a 
reserve provided for that purpose, but 
should in no way interfere with any 
other agency seeking to build or finance 
building on another plan. 

When a city like New York was a vil- 
lage, its narrow lots and three story 
buildings supplied its village needs, but 
when business and a greater popula- 
tion required more land and great 
buildings, the small lot owner found the 
value of his land rising by leaps and 
bounds until the cost for land made 
new buildings impossible. Thousands 
of village structures now remain wait- 
ing to be replaced with steel frame and 
elevator apartments and office build- 
ings in every city each demanding an 
acre of space or more. 

An owner of a small lot may demand 
half the total selling price of a building 



SOLVING IT 93 

that will tower forty stories above the 
street and make it utterly impossible to 
build upon the lot. Any single owner 
failing to sell when twenty such lots 
must be included in a site will prevent 
the building of a ten million dollar 
structure. 

If each parcel of land in a city was 
fully improved to the limit of its fer- 
tility, as shown by the rent it may col- 
lect, the benefit to each owner would 
secure the most expensive building any 
site would support. Getting no money 
for land will force the lot owners to 
build and take half the value of the 
completed building as profit, in place 
of getting a cost for their land. 

The present building difficulty is 
found in having no security for the 
building money advanced, the land 
value, takes a preferred lien and the 
building money must take a second 
mortgage, making an almost certain, 
loss when the mortgage cannot be paid, 
a loss equal to the cost of the building. 



94 SCIENCE OF VALUE 

There would be no investment bet- 
ter than securities for modern fire proof 
elevator steel frame buildings if all se- 
curities were equal, and if the rents 
collected were all used for the benefit 
of the building and none of the rent 
permitted to return a cost for land. 

To transfer the cost for land into 
building cost the finance plan must 
force the value of new buildings to a 
basis of two times cost by so limiting 
the cost that the rent collected will 
pay two times the rate of interest on 
the cost money, make all building se- 
curities twice the cost of building, but 
none of them being secured by a value 
of land. 

A city should act as trustee to fi- 
nance building and other capital where 
such capital depends on rents or divi- 
dends to return its cost. A city should 
issue and sell building securities at two 
times the cost of building, holding out 
one time cost for the benefit of present 
land owners. 



SOLVING IT 95 

There must be no mortgages. Se- 
curities should be perpetual, and when 
redeemed from the reserve, should 
again be sold to replenish the reserve. 
City trustees should be perpetual. 
There would then be no individual pri- 
vate owners of a new building, it would 
be owned publically by its securities 
belonging to millions of people. 

There is no practical limit to the sum 
a city may supply except the limit of 
labor and material to build. Each 
structure will not only pay for itself, 
but it will create the money it uses 
and will rotate its own money to pay 
the rent it takes. Each building will 
not only supply the money it con- 
sumes as cost, but will supply the 
money it collects as rent, and will in- 
crease wage rates to cover the rent 
from tenants. 

By this plan a city takes a deed to 
the property as perpetual trustee, 
while the general public becomes the 



96 SCIENCE OP VALUE 

owner of shares in each building. Cap- 
ital is made liquid by being able to sell 
one hundred dollars worth of any- 
building although its value is ten mil- 
lion dollars and redeem securities on 
demand by having a reserve for that 
purpose. 

Building, in the central locations of 
a great city, calls for ample room for 
tall buildings having imposing ap- 
proaches — room for light and air and 
in most cases ten or more city lots must 
combine to secure the required space. 

Under a plan by which a city would 
finance its new building, the owners of 
small parcels, instead of opposing like 
a dog in a manger, trying to sell each 
small lot for an impossible price,— 
would find it more profitable to com- 
bine, for then each lot would get his 
true proportion of profit in a great 
building, whereas building on the small 
lot would leave a small profit from a 
low building. 



SOLVING IT 97 

Issuing securities at two times cost, 
and making them redeemable on de- 
mand, will become very profitable to 
owners of small lots where they may 
combine to erect a great building. A 
million dollar profit in each million dol- 
lar cost of building will convert what is 
now a land value, having no market 
into a higher building value having a 
cash market. 

More important than other things, 
to force owners of shacks on valuable 
sites to rush to the city finance com- 
mittee for new buildings will be the 
fact that the plan well under way, 
land values are certain to disappear as 
soon as the central business districts are 
properly improved. Unless the owner 
builds in time his land may become a 
public park with no expense to the city. 

The disease of the social organism 
demands a cure by understanding and 
by obeying the natural order. Strikes, 
labor organization, anarchist and so- 



98 SCIENCE OF VALUE 

cialism are but surface symptoms of 
the vital ills concealed within the body 
politic. 

The fatal germ of social disease is 
the permanent unemployed and the 
low rates of wages. The danger from 
disease germs is greatest in cities which 
are the vital organs of the body politic. 
It is in cities the remedy must be first 
applied, but merely to set the unem- 
ployed at work will not immediately 
cure the disease. 

The complaint has effected the en- 
tire body politic, shown by disease tis- 
sue in rotten ruins of old buildings that 
now disgrace the best locations, and 
time must elapse before diseased capi- 
tal tissue can be replaced with healthy 
tissue and a new distribution of ac- 
cumulated wealth take place. 



